Five questions on regulating for-profit colleges

Suzanne Mettler is the Clinton Rossiter professor of American institutions in the Government Department at Cornell University. Her new book, “Degrees of Inequality: How the Politics of Higher Education Sabotaged the American Dream,” examines changes in U.S. higher education over the last several decades, arguing that the American higher education system now reinforces problems of inequality rather than trying to solve them. One of the key themes of the book is the way “for-profit” colleges take advantage of and perpetuate a complex system of government subsidies. The U.S. Department of Education is proposing new rules on for-profit colleges, and finished gathering public comments this week. I asked Mettler five questions about the politics behind these proposed regulations

Henry Farrell: The Department of Education is proposing new rules requiring that for-profit colleges meet a “gainful employment” standard. You discuss the history behind these rules in your book. Why does the department need to make new rules, given that it laid out similar standards a few years ago?

Suzanne Mettler: The for-profit colleges comprise the most rapidly-growing sector of higher education, now enrolling 13 percent of U.S. college students. Today the sector utilizes one in four federal student aid dollars and accounts for nearly half of all student loan defaults. The federal government is therefore obligated to hold this sector accountable, both to students and taxpayers. Yet it has been dwelling in something of a regulatory vacuum because Congress loosened existing regulations between 1998 and 2006, and then in 2012 a federal judge invalidated rules created by the Department of Education in 2011.

To their credit, the for-profit schools take in primarily low-income and minority students, but many end up worse off than if they had never enrolled. Nearly all (94 percent) borrow to afford the steep tuition, typically double what public universities and colleges charge. Later on, even if they are among the 22 percent who manage to graduate, they have an extremely hard time finding jobs that permit them to repay their student loan debts, at a median level of $33,000.

People outside education don’t understand the for-profit colleges’ business model very well. Exactly how dependent are for-profit colleges on government subsidies?

Government subsidies are the lifeblood of the for-profit colleges, and this is nothing new. When lawmakers created the first G.I. Bill in 1944, trade schools (as they were then called) mushroomed overnight to take advantage of the new business opportunities it provided. This same pattern repeated itself after 1972, when civilian student aid was extended to students attending such schools.

Today the for-profits are permitted by law to receive up to 90 percent of their revenues from one federal law: Title IV of the Higher Education Act of 1965, which includes Pell Grants and student loans. Monies the schools receive from military-related education programs, such as the Post-9/11 G.I. Bill, do not count against this limit. As a result, the 15 largest for-profits, which are publicly traded on Wall Street, receive an average of 86 percent of their revenues from the federal government.

Why has it been so hard to impose even minimal standards (e.g. requirements that at least 35 percent of for-profit college students make payments on their government subsidized loans if the college is to receive federal subsidies)? How do businesses like Kaplan (where only 27 percent of students made any payments on their outstanding loans) justify their existence? [Kaplan used to be owned by The Washington Post Company, which has since sold The Washington Post, and is now called Graham Holdings.]

The for-profit colleges have grown into a very powerful industry. They have long held sway in Congress because they are scattered across a vast number of congressional districts. Since the 1990s, the industry has become more politically organized and invested large sums in lobbying and campaign contributions. American students and families, by contrast, are not mobilized around these issues. The businesses defend themselves as catering to an underserved population, though often students could attain the same training at public colleges for a fraction of the cost and considerably less debt.

Democrats worried about poverty used to defend for-profit colleges against fiscally conservative Republicans. Now Republicans (together with a few Democrats) are defending for-profit colleges against Democrats and reformers. Why did the partisan politics of for-profit education change so dramatically over a couple of decades?

During the Reagan Administration, Secretary of Education William Bennett criticized the for-profits as “diploma mills designed to trick the poor into taking on federally-backed debt,” and in 1990, Sens. Bob Dole and Phil Gramm introduced legislation to regulate them. Since the mid-1990s, however, GOP critics vanished after some party leaders began to champion the for-profits as a private-sector alternative to the higher education establishment. Given the dynamics of rising partisan polarization, the rank-and-file quickly fell in line. Some Democrats now seek to represent constituents who have been taken advantage of by such schools and incurred unpayable debts, but others continue to defend them.

You say that the problems of reforming for-profit colleges are an example of “polarized plutocracy.” What does this term mean, and what are its broader implications?

In higher education policy today and in numerous other areas, existing public policies require maintenance and updating, but lawmakers fail to respond accordingly. The obstacles are twofold. Rising partisan polarization makes it considerably harder for lawmakers to consider policy implementation, outcomes, and alternatives, because to do so requires flexibility, willingness to negotiate, and basic agreement on the value of government’s role. As a result, the broad concerns of the general public get little heed. Yet even in this very polarized climate, some voices do manage to have their voices heard — typically powerful vested interests that benefit from existing policies, such as the for-profits. I call these twin dynamics “polarized plutocracy,” and they imperil the nation’s ability to respond to crises in several policy areas.